Performance Based Funding: The National Landscape

By Betsy Prueter

A recent report from the Education Policy Center at the University of Alabama highlights the current status of states’ work with performance-based funding in higher education. Performance-based funding allocates state funds based on institutional performance (e.g., retention and graduation rates) rather than on number of students enrolled.

Among the report’s findings:

  • 39 states have some kind of performance-based funding activity:
    • 22 states currently have a performance-based funding system in place.
    • 7 states have approval for performance-based funding but have not yet implemented it.
    • 10 states have had formal discussions around performance-based funding.
  • The design of performance-based funding programs differs by state. Some states are implementing programs that only apply to four-year institutions, some are implementing with separate metrics for community colleges, and some are implementing programs that apply equally to all institutions, regardless of type.
  • While performance-based funding in some form or another has been around for over forty years, earlier models tended to focus on graduation rates, number of degrees awarded, job placement rates, or student success on licensing exams, while current models tend to focus on progress outcome indicators such as credit accumulation, retention rates, course completion, and enrollment in remediation education.
  • The report offers cautions and recommendations for implementing performance-based funding programs in the future.